21 Mar Is there a good time to file my bankruptcy case?

A client recently visited my office seeking to file bankruptcy. Fortunately, he’s still working. Unfortunately, he just suffered a big pay cut. In fact, just last month, his income was reduced by $50,000/year. Even though he’s in severe financial difficulty, it’s not a good time for him to file a bankruptcy case under chapter 7. How come?

Although he is making less than the median income for a family his size now and would clearly qualify for chapter 7, his “current monthly income” – the average income he had in the past six months – reflects the income that he had when his salary was $50,000/year higher. At that level, he would not pass the means test. His “current monthly income” – which is not current at all – would be higher than the median income for family his size. At that level, he would be presumed to be abusing the system to file a chapter 7 and his case would be subject to a motion to dismiss.

So, this client will have to wait a few months until his “current monthly income” reflects his new reality.

Isn’t that silly? What was Congress thinking? Was Congress thinking? I don’t think so.

Lakelaw represents people and businesses in bankruptcy in Illinois and Wisconsin.

Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.